Turkey's economy minister quits

Mr Dervis said he would now work to create a new coalition that reflected modern social liberal principles ahead of elections due in November.

This is yet another serious blow to Prime Minister Bulent Ecevit, who has been battling to hold his government together.

Mr Dervis' guidance was crucial in securing a $16bn loan backed by the International Monetary Fund, as Turkey struggles to recover from its worst recession since World War II.

Turkey's economic problems have been compounded by the unstable political situation.

Mr Ecevit has now named Masum Turker, a deputy from his own Democratic Left Party, to replace Mr Dervis.

Political crisis

"After evaluating the situation, I now resign," Mr Dervis said on Saturday morning.

"I will work for the creation of a choice on the centre-left that reflects modern social liberal theory and that could come to power on its own."

His resignation had been widely expected and is therefore unlikely to have much impact on Turkey's unstable financial markets.

Turkey's Prime Minister Bulent Ecevit reportedly told him on Friday that he should make up his mind whether he wanted to remain in his post or continue with his initiative to unite Turkey's fractured centre-left.

In recent weeks Mr Dervis - a former World Bank official - has been holding behind-the-scenes talks with rivals of the prime minister, angering his government.

Mr Dervis has resigned once already, amid a political crisis in July during which more than 60 legislators quit Mr Ecevit's party, triggering a sharp fall in the value of Turkey's currency.

But hours later, he withdrew his resignation - after reportedly being persuaded to stay on by President Ahmet Necdet Sezer.

Last week, the prime minister was forced to call elections for 3 November - 18 months ahead of schedule - to break the political deadlock which has virtually paralysed his government.

Pro-Western alliance

Mr Dervis has made no secret of his support for the New Turkey Party led by Mr Ecevit's popular former foreign minister Ismail Cem, and founded by dissident members of Mr Ecevit's party.

Turkey's political crisis
May 2002 - Prime Minister Ecevit falls ill but refuses to step down as leader
25 June - Mr Ecevit faces the first of many calls to quit from dissidents in his own party
Early July - More than 60 members of Mr Ecevit's DSP party resign, including Foreign Minister Ismail Cem and Deputy Prime Minister Husamettin Ozkan
12 July - Ismail Cem creates the New Turkey Party
31 July - Parliament votes to hold early elections, despite objections from Mr Ecevit

The two men, popular pro-Western figures, have been dubbed Turkey's "Dream Team", and may well join forces in time for November's election.

In his resignation speech, Mr Dervis said: "We need a strong government after the elections. Turkey has a difficult path ahead of it but we can overcome the obstacles."

A single party that unified the divided centre-left would increase the chances of stable government in Turkey.

But if the votes are split evenly between many small parties, some could fail to win the 10% needed to gain seats in parliament.

That would strengthen the position of the Justice and Development Party (AKP), whose Islamist roots put it at odds with Turkey's staunchly secularist military.

With a possible US-led strike on Iraq looming, Washington will also be hoping that Turkey - a member of Nato and a EU candidate member - will be governed by a pro-Western party.

But Mr Dervis said he was battling a political culture on the centre-left that had seen far more splits than unions.

"Wish me luck," he said.